G. Ramanujam, J.
1. This revision is directed against the order of the lower Court rejecting an application, I.A. No. 117 of 1970 filed by the petitioner under Sections 8 and 33 of the Arbitration Act seeking a reference of the disputes involved in A.S. No. 66 of 1969 on the file of the lower Court to two named arbitrators. The lower Court rejected the said application in the following circumstances.
2. The respondent herein instituted O.S. No. 449 of 1965 on the file of the District Munsif's Court, Poonamallee for eviction of the petitioner herein and for recovery of arrears of rent as also future damages for use and occupation. The said suit was transferred to the file of the District Munsif, Kancheepuram and renumbered as O.S. No. 772 of 1967. The petitioner contested the suit on various grounds but the trial Court rejected his defence and decreed the suit with costs as prayed for. The petitioner thereafter filed the said A.S. No. 66 of 1969 before the lower Court against the decree and judgment in O.S. No. 772 of 1967. Pending that appeal in or about 6th August, 1969, Mr. Renganatha Sastri, who was acting as counsel for the respondent in some other proceedings between the parties put forward certain suggestions to Mr. R. Gopalaswami Iyengar, counsel for the petitioner in the other proceedings, to refer the following two outstanding matters, (1) Arundale house and (2) payment for the two 'C type houses built by the petitioner to the same arbitrators for decision, the words same arbitrators meaning the arbitrators appointed for the settlement of the dispute arising out of C.S. No. 18 of 1966. To this suggestion Mr. Gopalaswami Iyengar replied by his letter dated 29th August, 1969, that his client (petitioner) is willing to have the disputes regarding (1) Arundale house and (2) payment for the two 'C' type houses referred to the same arbitrators who are going to decide the dispute arising out of C.S. No. 18 of 1966, provided that the issues to be raised should be the same as were raised in the suit, which was then the subject-matter in the above appeal before the lower Court. Mr. Renganatha Sastri, by his letter, dated 23rd October, 1969 to Mr. R. Gopalaswami Iyengar informed that his client (respondent) agrees to have the issues arising in the suit as well as the appeal A.S. No. 66 of 1969 may be referred to arbitration by the same arbitrators, as also the dispute regarding the 'C' type staff quarters and that a formal agreement to refer to arbitration the above two matters had to be entered, before the arbitrators can act and asked for a draft of the agreement from the petitioner. Mr. Gopalaswami Iyengar replied to this letter on 4th March, 1970 enclosing two drafts for the purpose of referring the dispute (1) regarding Arundale house and its annexures and (2) regarding payment to the 'G' type staff quarters and sought for the suggestions of Mr. Renganatha Sastri and stated that after the draft is approved by the respondent, he would have the agreements finalised. To this Mr. Renganatha Sastri replied by his letter, dated 6th March, 1970 that in view of the long delay that had elapsed since his proposal, his client, the respondent was not anxious to refer the matter for arbitration resulting in further delay and that he is anxious to have the appeal heard and disposed of on merits. On the basis of this correspondence between Mr. Renganatha Sastry on the one hand and Mr. Gopalaswami Iyengar on the other, the petitioner filed I.A. No. 117 of 1970 and contended that there is a valid and concluded agreement between the parties to refer the disputes arising in the appeal to arbitration and that the Court should therefore make an order referring the disputes involved in the appeal to the two named arbitrators.
3. The respondent however contended that the proposal for arbitration was made, as early as 23rd October, 1969, that there was no reply to the said letter till March, 1970, that it was only when the hearing of the appeal was fixed for 23rd March, 1970 an application for reference to arbitration had been filed by the petitioner with a view to delay the hearing of the appeal and that the letter, dated 23rd October, 1969 by Mr. Renganatha Sastri agreeing to have the disputes arising in the appeal to be referred to arbitration was subject to the execution of a formal agreement and as such it cannot be construed as a concluded contract between the parties. As against this the petitioner contended in his reply statement, that the acceptance of Mr. Renganatha Sastri to refer the disputes to arbitration was not meant to be conditional on the execution of the formal agreement and that the absence of a formal agreement will not, in any way, whittle down the effect of the solemn agreement entered into between the parties, the terms of which were unambiguous and unequivocal. The lower Court held, after a due and elaborate consideration of the entire correspondence between the said two advocates, that Mr. Renganatha Sastri had no authority to agree on behalf of the respondent, to refer the disputes arising in the appeal to arbitration, as he was not the counsel appearing in the appeal for the respondent and that in any event, there is no concluded contract between the petitioner and the respondent to refer the disputes to arbitration. The question in this revision is whether the view taken by the lower Court is correct.
4. The distinction between an agreement which is final in its terms, and therefore binding, and an agreement which is dependent upon a stipulation for a formal contract, is pointed out in many judicial pronouncements.
In Rossiter v. Miller (1878) L.R. 3 A.C. 1124, Lord Cairns said:
If you find not an unqualified acceptance...subject to the condition that an agreement is to be prepared and agreed upon between the parties, and until that condition is fulfilled no contract is to arise then you cannot...find a concluded contract.
In Winn v. Bull 7 Chancery Division, P. 29, Jessel, M. R. laid down that:
Where you have a proposal or agreement made in writing expressed to be subject to a formal contract being prepared, it means what it says : it is subject to and is dependent upon a formal contract being prepared. When it is not expressly stated to be subject to a formal contract it becomes a question of construction, whether the parties intended that the terms agreed on should merely be put into form, or whether they should be subject to a new agreement the terms of which are not expressed in detail.
In Von Hatzfeldt-Wildenburg v. Alexander (1912) 1 Ch. 248 Parker, J. had expressed:
'It appears to be well-settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored.' (In other words, there may be a case where the signing of a further formal agreement is made a condition or term of the bargain, and if the formal agreement is not approved and signed there is no concluded contract. Vide K. Sriramulu v. Aswatha Naraya : 3SCR387 .
5. In Currimbhoy & Co. Ltd. v. Greet , the Judicial Committee expressed the view that the principle of the English Law which is summarised in the judgment of Parker, J., in Von Hatzfeldt-Wildenburg v. Alexander (1912) 1 Ch. 248 , was applicable in India.
6. The Supreme Court had occasion in K. Sriramulu v. Aswatha Narayana : 3SCR387 , to consider a similar question. According to the Supreme Court, the proper test is to find out whether the execution of a formal agreement was intended to be a condition of the bargain between the parties, or whether it was a mere expression of the desire of the parties for formal agreement which can be ignored. On the facts of that case the Supreme Court held that the evidence did not show that the drawing up of a written agreement was a pre-requisite to the coming into effect of the oral agreement for all the vital terms of the contract like price and area of the land and the time for completion of the sale have all been agreed between the parties but what was not agreed was as to the mode of payment of the consideration, and that the oral agreement was quite effective notwithstanding the non-execution of any formal written document. The learned Judges of the Supreme Court expressed: (at page 1031).
It is well-established that a mere reference to a future formal contract will not prevent a binding bargain between the parties. The fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are, however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case.
7. Bearing the principles laid down in the above decisions, it has to be seen whether the correspondence filed in this case proves a complete and binding contract between the parties. Having regard to the circumstances of this case where the proposal and acceptance to refer the matters to arbitration were not directly between the parties, the execution of the document cannot be said to be merely, formal. Further the acceptance of Mr. Renganatha Sastri which is relied on for the purpose of establishing a binding contract cannot be said to be by the counsel on record in the appeal and in such a case the contract to be effective and enforceable should be by a formal document signed by both the parties. The acceptance of Mr. Renganatha Sastri specifically refers to a formal document being prepared and as a matter of fact a draft subject to approval and further suggestions has been actually sent by Mr. Gopalaswami Iyengar on behalf of the petitioner to Mr. Renganatha Sastri in pursuance of the requirement as to a formal agreement. I am of the view that the acceptance could only be subject to the execution of a formal agreement signed by the parties. The acceptance by Mr. Renganatha Sastri has to be taken as only a conditional acceptance subject to the execution of a formal document signed by the parties. In this case the execution of a formal document is necessary in view of the fact that the proposal and acceptance have not been made directly between the parties but through counsel and that to have an effective and enforceable agreement, a document has been found to be necessary. It is not possible therefore to construe the acceptance which is in form conditional as being absolute on the ground that the parties did not really and seriously contemplate the execution of a formal agreement. I am therefore inclined to agree with the view taken by one lower Court and to hold that there is no binding land enforceable contract to refer the matters to arbitration between the parties and that the application for arbitration has been rightly dismissed by the lower Court.
8. In the view I have taken that there is no binding and concluded contract between the parties it is not necessary to decide the further question as to whether Mr. Renganatha Sastri was empowered to enter into an agreement to refer the matter comprised in A.S. No. 66 of 1969 to arbitration, when he was not appearing for the respondent in that appeal.
9. The civil revision petition is therefore dismissed with costs.